
A dispute has arisen between the Central Bureau of Investigation (CBI) and several high-street banks in India over the classification of certain borrowers as ‘fraud accounts’. The disagreement centers around whether a Supreme Court ruling from last year, which stated that borrowers must be given a hearing before being labeled as ‘fraud’, applies retrospectively to accounts that were already classified as frauds before the ruling. The CBI insists that the ruling applies to both new and old cases, while the banks argue that it should only be applied prospectively. As a result, some banks are planning to move the Supreme Court to seek clarification on the matter.
Background of the Dispute
Last year, the Supreme Court ruled that borrowers must be given a hearing before their accounts can be labeled as ‘fraud’. However, the court also stated that no opportunity of being heard is required before an FIR (First Information Report) is lodged and registered. The court emphasized the principles of natural justice, which require that borrowers be served a notice, given an opportunity to explain the conclusions of a forensic audit report, and allowed to represent themselves before their account is classified as fraud under the Reserve Bank of India’s Master Directions on Frauds.
Banks’ Concerns and CBI’s Approach
Many banks are concerned that seeking fresh responses from past fraud cases could be legally challenging and may even pose difficulties in locating certain clients, some of whom may have become fugitives. The disagreement between the CBI and the banks is threatening to stall investigations in multiple cases. The CBI, on the other hand, may be driven by the stigma associated with the ‘fraud’ tag, which can negatively impact a borrower’s clients and investors. Additionally, the CBI wants to avoid matters that could be legally challenged in the future and is cautious in its approach to investigations.
Seeking Clarification from the Supreme Court
Given the impasse between the CBI and the banks, some large banks are planning to appeal before the Supreme Court to seek a ruling on whether the Supreme Court’s decision should have retrospective effect. The banks argue that the ruling should not be applied retrospectively to cover borrowers who were already listed as frauds before the ruling. They believe that only future cases should be subject to the ruling, while the CBI maintains that the ruling applies to both new and old cases.
Conclusion
The dispute between the CBI and high-street banks in India over the classification of ‘fraud accounts’ is likely to be resolved by the Supreme Court. The disagreement centers around whether a Supreme Court ruling from last year, which requires borrowers to be given a hearing before being labeled as ‘fraud’, should be applied retrospectively to accounts that were already classified as frauds before the ruling. Some banks are planning to move the Supreme Court to seek clarification on the matter, while the CBI insists that the ruling applies to both new and old cases.